John R. Nofsinger

International Cross-Listing and Visibility

This study shows that international firms listing their shares on the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE) experience a significant increase in visibility, as proxied by analyst coverage and print media attention (The Wall Street Journal or Financial Times). The increase in analyst following is also associated with a decrease in the cost of equity capital after the listing event in a way consistent with Mertons (1987) investor recognition hypothesis. Our results are stronger for NYSE listing firms than for LSE listing firms. This may partially compensate firms for the higher costs associated with NYSE listing (compared to LSE listing).

Social Mood and Financial Economics

The general level of optimism/pessimism in society is reflected by the emotions of financial decision-makers. Because these emotions are correlated across economic participants, our hypothesis leads to three important outcomes. First, social mood determines the types of decisions made by consumers, investors, and corporate managers alike. Extremes in social mood are characterized by optimistic (pessimistic) aggregate investment and business activity. Second, due to the efficient and emotional nature of stock transactions, the stock market itself is a direct measure or gauge of social mood. Third, since the tone and character of business activity follows, rather than leads, social mood, stock market trends help forecast future financial and economic activity. Specific predictions about stock market levels and trading volume, market volatility, firm expansion, leverage use, and IPO and M&A activity are also given.

Institutional Herding, Business Groups, and Economic Regimes: Evidence from Japan

We study institutional herding in Japan. Japanese firms are primarily owned by financial institutions and other corporations, they may belong to a business group (the keiretsu), and they have experienced several distinct economic regimes in its recent past. Overall, we find herding in Japan occurs on a lower level than in the United States but with a large impact on price movements. The price impact is even greater for keiretsu-affiliated firms. We also find the effects and behavior of institutional herding depends on the economic condition and the regulatory environment.

Ownership and operating performance in an emerging market: evidence from Thai IPO firms

We examine the operating performance of Thai firms after they go public. Overall, we find that their performance declines. We then explore the relationship between managerial ownership and the change in firm performance. We find that firms with ‘low’ and ‘high’ levels of managerial ownership experience positive relationships between managerial ownership and the change in performance (alignment-of-interest hypothesis), while firms with ‘intermediate’ levels of managerial ownership exhibit a negative relationship between managerial ownership and the change in performance (entrenchment hypothesis). Examining the operating performance of IPO firms from an emerging market and finding a curvilinear relationship between managerial ownership and the post-IPO change in performance represents two significant contributions to the IPO literature.

Investment patterns and performance of investor groups in Japan

Abstract Using weekly aggregate investment flow from Japan, we study the investment patterns and performance of foreign investors, individual investors, and five types of institutional investors. Securities firms, banks, and foreign investors perform well over the sample period. Individual investors perform poorly. We also find that foreign investor trading is associated with positive feedback market timing and that this trading earns high returns. Alternatively, individual investors use positive feedback trading in their market timing but earn low returns. Consequently, we document evidence consistent with information-based models (foreign investors) and behavioral-based models (individual investors). It is a particularly new and interesting finding that evidence of both information-based trading and behavioral-based trading occurs in the same market.

Socially Responsible Funds and Market Crises

Compared to matched conventional mutual funds, socially responsible mutual funds outperform during periods of market crises. This dampening of downside risk comes at the cost of underperforming during non-crisis periods. Investors seeking downside protection would value the asymmetry of these returns. This asymmetric return pattern is driven by the mutual funds that focus on environmental, social, or governance (ESG) attributes and is especially pronounced in ESG funds that use positive screening techniques. Furthermore, the observed patterns are attributed to the funds’ socially responsible attributes and not the differences in fund portfolio management or the characteristics of the companies in fund portfolios.

Behavioral Finance: Investors, Corporations, and Markets

Behavioral finance : an overview / Kent H. Baker, John R. Nofsinger -- Traditional versus behavioral finance / Robert J. Bloomfield -- Behavioral finance : application and pedagogy in business education and training / Rassoul Yazdipour, James A. Howard -- Heuristics (rules of thumb) / Hugh Schwartz -- Neuroeconomics and neurofinance / Richard L. Peterson -- Emotional finance / Richard J. Taffler, David A. Tuckett -- Experimental finance / Robert J. Bloomfield, Alyssa Anderson -- The psychology of risk and uncertainty / Victor Ricciardi.

Why targeted investing does not make sense

Proponents claim that economically targeted investments (ETIs) can earn a prevailing risk-adjusted rate of return while also providing an additional economic benefit to the plan participants. This paper discusses the fallacies in the reasoning behind ETIs. In short, the structure that would make ETIs acceptable under the fiduciary standards of ERISA may also create a lemons problem which makes ETIs poor investments, on average. An agency problem derived from the organizational structure of public pension plans can exacerbate the lemons problem. This papers empirical evidence is consistent with this hypothesis. I find that the risk-adjusted portfolio returns associated with funds using ETIs are low.

A Review of Major Influences on Employee Retirement Investment Decisions

The recent retirement plan debacle of the Enron employees has caused regulators and lawmakers to think about new ways to protect and help retirement plan participants. When investigating participant investment decisions, researchers have traditionally studied the retirement plan characteristics and employee characteristics. More recently, some researchers have extended the analysis to social influences, such as social norms and peer affects. Others have expanded into behavioral finance and examined the role of various psychological biases. This paper combines and summarizes these four sets of influences so that researchers and policy makers can better understand all the influences affecting an employee when making retirement plan contribution and investment decisions.

Funding Levels and Gender in Public Pension Plans

Using a comprehensive sample of 2002 and 2005 U.S. public retirement systems, we found that public pension plan underfunding grew dramatically in these years despite a good economy, increasing state tax revenues, and strong stock market returns on average, plans were only 83% funded. Teacher plans and plans with the most retirees were more underfunded. We found no significant differences related to asset allocations or actuarial assumptions about inflation and rate of return. A primary factor associated with significantly lower underfunding was more female active participants in the plan, suggesting another risk to womens retirement income.